10/07/2013 - 07:09

State budget a key test

10/07/2013 - 07:09

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The onus is on the Barnett government to find a way out of its tight budget predicament.

The onus is on the Barnett government to find a way out of its tight budget predicament.

This year’s state budget is shaping as a critical moment for the re-elected Barnett government.

The budget will be unveiled in early August, later than normal, giving Premier Colin Barnett and Treasurer Troy Buswell more time to find savings and, more importantly, craft a strategy that will guide the state through uncertain times.

The fundamental challenge is clear – spending growth under the Barnett government has consistently outstripped revenue growth, and state debt has risen to uncomfortable levels.

The mismatch between spending and revenue is likely to get worse as economic growth slows, and as Western Australia’s share of GST grants continues to slide.

Though as Labor’s treasury spokesman Ben Wyatt has pointed out, the decline in GST grants was not unexpected – the Commonwealth Grants Commission has made it clear that WA would get a declining share of GST revenue.

On the spending side, rapid population growth has put a lot of pressure on the state’s social and economic infrastructure, triggering even more spending.

Once again, however, this should not have come as a shock to anybody.

The response so far has not been terribly impressive.

The government has imposed some ‘efficiency dividends’, forcing state government agencies to find savings.

It has also moved to cap the number of public servants and, more recently, it has applied the cap to the state’s total wages bill.

But there has been little in the way of major structural reform to the public sector, in a way that will deliver sustained savings.

Nor has the government shown much willingness to axe spending programs.

That is never easy, especially when governments are constantly pressured, as the Barnett government is finding right now, to spend more on hospitals, schools and other public services.

It was disappointing last month when the government moved instead to scrap $520 million worth of tax cuts that had previously been legislated by former Labor treasurer Eric Ripper.

The Barnett government initially deferred the abolition of stamp duty on non-real business assets, and last month passed legislation scrapping the cuts altogether.

That’s a poor outcome when Mr Barnett has repeatedly stated his desire to deliver tax relief for the small business sector.

The premier has made life harder for himself by making promises during this year’s election campaign that he will struggle to deliver.

The most notable was the claim that his top infrastructure priorities were fully costed and fully funded.

It subsequently emerged that Mr Barnett was assuming Canberra would pick up half the tab for the airport rail link, the MAX light rail project to Mirrabooka and the Swan Valley bypass, which is actually a section of the so-called Perth Darwin Highway,

Last week, federal opposition leader Tony Abbott confirmed that a future Liberal government in Canberra would not fund urban rail projects.

Mr Abbott sought to soften the blow by saying he would continue to fund the $1 billion Gateway roads project around the airport and was in discussions with the state on various other road projects.

“I’ll have more to say about them in the run-up to the election,” he said in Mandurah.

Messrs Barnett and Buswell have tried to suggest this would simply be a tweaking of the state’s funding mix and that the pool of money would stay the same.

There might be less money for urban rail but there would be more for roads, so no change in net terms.

“It’s all good stuff; which bucket it goes into doesn’t really matter, as long as we get a strong commitment on transport,” Mr Barnett said.

It remains to be seen whether the state does, in fact, get a strong commitment on transport.

The government keeps on touting private investment as one part of the funding solution, but it will need to do a lot better than the botched refurbishment of Muja power station.

It was meant to be a public-private partnership, with the entire $100 million financial contribution coming from Verve Energy’s private partner.

Instead, Kempe Engineering has bailed out of the project, leaving the state with a bill estimated to be as high as $280 million.


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